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CME: Iowa State University Hog Returns Dropped in August

16 September 2016

US - Returns for producers of hogs and cattle are being pressured by lower animal prices. In recent months, lower feedstuff costs have helped reduce production costs, but in many cases not enough to maintain margins. Today, we will discuss monthly farrow-to-finish hog producer returns as calculated by Dr Lee Schulz at Iowa State University (ISU), write Steve Meyer and Len Steiner.

For cattle we will summarize the latest estimated annual cow-calf producer returns calculated by the Livestock Marketing Information Center (LMIC) and also briefly discuss monthly cattle feeding returns.

A keyword to these returns is “calculated”, that is they are not survey-based, they are based on rather typical production assumptions and use various USDA reports including prices reported by the Market News Division of USDA’s Agricultural Marketing Service. They do not represent individual operations and are used for market analysis purposes. They should be looked at mostly in terms of month-to-month and/or year-over-year change. Rather short-term production and marketing changes are not incorporated in these estimates, for example some cattle feeders at times substitute wheat for corn as it is cost effective.

The ISU hog returns dropped in August compared to levels of recent months. On a per hog sold basis, the return for barrows and gilts sold in August was in the red at $-3.07 per animal without adding the value of manure produced and barely positive at $0.70 after valuing the manure (including manure value is graphically shown).

The August estimate was well below that posted in recent months and dramatically less than a year ago ($20.27 per head), largely due to lower hog prices. Year-overyear, total feedstuff costs for August sold animals were down just over $5.00 per head. Producer hog returns are not forecast to improve during the next few months.

Turning to LMIC’s estimated cow-calf returns, first note that these calculated returns do not include all economic costs of production; the returns are the margin above cash costs of production plus pasture rent. So, operator management cost, labor, etc., are not incorporated in the ledger. LMIC has been ratcheting back estimated 2016 cow-calf returns throughout this year as forecasted calf prices were lowered. The returns, as are most cattle production systems in the US, are heavily influenced
by calf sale prices which occur during the fourth quarter of the calendar year. For 2016, the latest LMIC estimate is a return over cash costs plus pasture rent of just over $70.00 per cow.

That represents a huge one year decline of over $230.00 per cow (2015’s return was over $300.00 per cow) and will be the lowest since 2012’s. The huge returns in recent years, which economically have driven aggressive herd growth, have quickly faded out of view from the rear-view-mirror.

LMIC’s cattle feeding return estimated for steers sold in August was in the red, again. Those returns are based on using the cash prices to sell animals not the formula or grid prices which are higher.

LMIC showed feedlot closeouts in August did not nearly cover total costs of production based on starting the animal on-feed at 750 pounds. Some pens of cattle that received good premiums above cash market prices probably just broke even in August. The calculated August return was the third consecutive month of estimated losses. Only two months so far this year have sale prices been well above breakeven cost levels and this has come on the heels of 2015, which was the worst year ever for cattle feeders.

So what might be some of the impacts of the recent trends in hog and cattle producer returns? Many US hog producers will become more cautious about expanding their herds, those directly tied to the new packing plants being constructed may be the most aggressive increasing sow numbers.

Economic incentives for beef cowherd growth have quickly slipped away; as a result, the rate of
breeding herd growth may dampen significantly during 2017.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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